FAYETTEVILLE : Slowing market slams Israel
Posted on Monday, August 18, 2008
Fayetteville developer Ben Israel’s real estate holdings that early last year included 63 projects in four states have dwindled to six properties, mostly in Northwest Arkansas.
Israel’s Dixie Real Estate, Dixie Construction, Dixie Development and the other Dixie companies once had 130 employees that planned to occupy the top two floors of the Commerce II building along Joyce Boulevard.
Today, two employees — Israel and his assistant — operate in an upstairs office space in a building along Rolling Hills Drive. The 60, 000-squarefoot Commerce II building is being foreclosed, because the cash flow from rental units can’t cover the debt service. Israel had 81 lawsuits filed against him and his projects but said he’s settled most of them. Fewer than a dozen remain, he said, and he’s trying to pick up the pieces of what’s left and move forward. “It’s our goal to get as many paid as possible,” he said. “We could have thrown up our hands. That’s not what we chose to do.” The soft real estate market in Northwest Arkansas has taken its financial toll on builders, developers, contractors, suppliers and others. It also has caused hardships for investors in failed developments. Israel and the numerous investors in his many projects have suffered serious financial loss, faced costly legal battles and struggled to deal with nervous bankers.
REALITY CHECK Israel said he’s looking on the bright side of his financial woes, because it has caused him to draw closer to his Christian faith. “I’m actually grateful. It has pointed me to who I am,” he said. “God brings these things into your life to bring you a reality check,” he said. “I was making choices I would not normally make. This has forced me to take a hard look at who I am and who I want to be,” said Israel, 65. “I want to be what God wants me to be for the rest of my life. “ Sometimes, we need a good lesson in humility. I certainly did,” Israel said. He also said that he’s grateful to have a loving, supportive wife who has stood beside him during these trying times. Investors in Israel’s projects said they have suffered huge losses. In many cases, investors have taken over Israel’s projects and refinanced them with bankers willing to be flexible to try to avoid losses.
Most investors interviewed declined to comment on the record because of pending litigation and the possibility of future legal action on projects in Northwest Arkansas, Oklahoma, Missouri and Texas. Investors said that Israel would typically find four or five investors with strong financial statements and good credit histories to join him in seeking bank financing on construction projects. Investors explained how Israel used “vertical integration” to handle each project with his various “Dixie” companies. Israel bought the properties through his real estate company, completed the site work through his excavation company, built the project with his construction company, used his landscaping company, then leased and operated the property through his management company.
“They haven’t turned out the way I’d hoped,” said Tom Muccio, a retired Procter & Gamble executive who is one of the largest investors in Israel’s projects. “I’m just trying to work my way through — project by project.” Muccio would not discuss the specifics of the projects he’s invested in, but he confirmed reports that he’s taken over management of many of the troubled projects that he invested with Israel. He said he appreciates the willingness of local banks to try to work through these difficult situations.
“I’ve taken over projects with negative cash flows, lawsuits and liens,” said Muccio.
“The local banks have been very helpful with me to restructure deals, so we could keep the projects,” he said. “It’s still very painful.” Muccio is the chief executive officer of the Rogers-based Biobased Insulation, which includes a soy-based spray foam insulation business that Israel once had an interest in.
Even smaller investors in his projects have felt the financial sting. Some said that they have lost not only their initial investment, but they also have been required to put up more money or to subsidize cash flows to satisfy lenders. “They are pretty lucky if all they lose is their investment,” said John Marinoni, a small investor in one of the projects. “I don’t think there are any happy campers among the lot.” Israel regrets that investors in his projects lost money. He’s lost a lot of money, too. “Unfortunately, people have been hurt — friends and acquaintances,” Israel said. “You wake up thinking about it and wish it hadn’t happened that way. “ There’s not a single project that I am not losing more than any investor,” he added. “On several, I am losing more than all of them combined.” Israel said that he did not go searching for investors in his real estate projects. They came looking for him, because they wanted to make money in the then-redhot real estate market. “When times are good, you are brilliant. When times are bad, you’re not so smart,” he said. “It’s not much different from a stock broker.” “ All of us wish it would have been different, ” Israel said.
LOTS OF LAWSUITS Israel and his investors have faced a flurry of lawsuits. He’s settled most of them, he said. Israel settled an almost $ 4 million lawsuit filed by ANB Financial last year against Signature Properties by deeding the property to the bank in lieu of foreclosures, he said. In some cases, he’s paid less than the balance due to settle judgments. He also has agreed to sign a judgment in order to avoid additional legal fees. Sharon Baggett, one of two real estate brokers who sued Israel to collect unpaid commissions from Dixie Real Estate, said she agreed to take less than the amount she was owed in satisfaction of the judgment. She said the other agent did the same thing. Baggett said that she’s lucky that she was able to get back from Israel her initial investment on one project, but she remains on the hook with the lender. Israel was set for trial earlier this month in Washington County over unpaid personal property taxes for one of his companies, but he agreed to a consent judgment, said George Butler, Washington County attorney. The most recent known lawsuit seeking a judgment for a past-due credit card was filed in Washington County in June, according to court records in Benton and Washington counties.
PENDING FORECLOSURES Two Israel projects currently face foreclosure, and others are set for trial or are pending.
A federal judge earlier this month approved a foreclosure against the Commerce II office building along Joyce Boulevard. The outstanding mortgage and fees totaled more than $ 11 million, according to court documents. The case went to federal court, because so many of the investors were from out of state.
First Federal Bank was awarded a foreclosure decree on July 2 against Hwy. 102 Investors on $ 2. 1 million in debt secured by a convenience store along Arkansas 102 in Benton County. The property also includes retail space and a car wash, investors said.
Foreclosure sale dates have not been set on either of these properties, according to court records.
The Nelson’s Crossing retail development along Joyce Boulevard in Fayetteville also faces a foreclosure lawsuit filed May 23 by one of the subcontractors. The case is set for trial Dec. 1.
Liberty Bank filed a $ 2. 9 million foreclosure lawsuit last August against the Creekside Center project on Mall Avenue in Fayetteville. The case is set for trial Feb. 27.
Investors said they are concerned that others may end up in foreclosure or litigation.
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